Low equipment repayments can hide a large final bill
A low equipment repayment does not necessarily mean a low total cost. A contract can defer a substantial amount until its end: the balloon payment. Compare the whole payment schedule before committing to a work vehicle or machine.
This week's Australian Bureau of Statistics national accounts provide an economy-wide backdrop, not a forecast of your business's orders. The useful business decision is whether the proposed contract fits the asset's working life and your own payment plan.
How much should you plan for the final payment?
Illustration only: assume a contract has a $15,000 balloon due in five years. Dividing $15,000 by 60 months gives $250 a month to set aside. This simple calculation assumes no starting savings or interest earned; it is not an interest-rate calculation or finance quote.
The $250 allowance is additional to the regular instalment and any separately payable costs. Do not count interest twice if it is already included in the quoted instalment. Ask the provider for the full schedule and a total amount payable.
Compare three things before signing
Payment schedule: list the deposit, number and amount of instalments, fees and final payment. Compare offers for the same asset and term, noting what each figure includes.
Ownership and exit: a lease and a purchase arrangement are not interchangeable. Confirm who owns the equipment, what happens at the end and what an early exit would cost.
Final-payment plan: identify actual funds you intend to use. A future sale price can be uncertain, and a new loan is subject to a fresh assessment. Neither should be treated as guaranteed.
A practical quotation checklist
Ask for these fields in writing: asset price; upfront contribution; financed amount; payment frequency; number of payments; interest basis; all fees; balloon amount and due date; ownership at the end; early-termination conditions. Have an accountant review tax treatment separately.
The Australian Government's business.gov.au explains that a larger final payment can reduce instalments in some hire-purchase arrangements. This article's savings illustration shows why the final amount still belongs in your budget. No particular product or approval outcome is recommended.
Sources and practical tools
General information only. This is not financial advice. Loan options and eligibility depend on your personal income, liabilities, assets and lender assessment criteria.
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